On July 8, 2010, an interim rule was published (75 Fed. Reg. 39414-20) that requires government contractors to report information about their first-tier subcontractors and to report executive compensation for themselves as well as their subcontractors. This information will then be made publicly available at USAspending.gov.

Under the interim rule, contractors will be subject to new reporting requirements:

1. Information (name, address, etc.) relating to first-tier subcontractors and the amount of each subcontract must be reported. The only exceptions are for classified contracts, contracts to individuals or contracts to those with a gross income of less than $300,000 in the previous year. There is NO exception for small companies, privately-held companies or companies producing commercial off-the-shelf items.

   To ease the burden of complying with this requirement, it will be phased in. Effective immediately through September 30, 2010, the subcontractor reporting will only be required on newly awarded subcontracts if the prime contract is expected to be worth $20 million or more. From October 1, 2010 through February 28, 2011, reporting will be applicable to newly awarded subcontracts under prime contracts expected to be worth over $550,000. After March 1, 2011, just about six months from today, the rule will apply to all non-exempt contracts expected to be over $25,000.

   The subcontract reporting is to occur by the end of the month following an award, and annually thereafter, by the prime contractors submitting reports to the Federal Funding Accounting and Transparency Act Subaward Reporting System.
    

2. The names and total compensation (not just limited to salary) from the previous fiscal year of contractors’ and first-tier subcontractors’ top five executives also must be reported. However, this compensation information is required only if the company (prime contractor or first-tier subcontractor): 1) received at least 80 percent of its annual gross revenue from federal contracts, grants and loans; 2) received $25 million from federal awards; and 3) doesn’t already report executives’ compensation publicly (e.g., filed with the SEC).

   The salary data is to be reported annually to the Central Contractor Registration (CCR).

This interim rule is the result of the Federal Funding Accountability and Transparency Act of 2006, co-sponsored by then Senator Barack Obama, which was later amended in 2008. Although some contractors are already required to report this information as a condition of receipt of American Reinvestment and Recovery Act (“ARRA”) funds, the new rule now applies to all federal contracts with the extremely limited exceptions noted above. To enforce these rules, all federal agencies are required to review reports quarterly and use remedies available under the contract to require contractors to comply.

Besides the effort to actually comply with these new reporting requirements, it becomes paramount for prime contractors to flow down provisions to all first-tier subcontractors, including vendor purchase orders, so they can obtain the information needed to satisfy their reporting obligations or to establish any exception to the reporting requirement.

For More Information

For more information on this interim rule, please contact any member of the Taft Government Contracts team or your primary Taft attorney.